Four elements of a trading system

There are four elements in a trading system: direction forecasting, timing, money management, and mindset control. Direction forecasting answers the question of buying and selling directions. Relatively speaking, this step is the easiest, because price changes can be simplified into two directions: ups and downs. If you go in one direction wrong, the opposite direction is correct. Some people think there are three directions, in addition to ups and downs, there are sideways. But sideways are only relative and temporary. Only ups and downs are absolute and eternal. The problems that sideways brings to trading can be solved through timing and money management.

Timing and money management are inseparable. To understand timing is to understand that futures markets are essentially opportunity markets. The success of speculation depends largely on your ability to judge opportunities. The stronger this ability is, the lower the frequency of trading. Many investors tend to "use all their tricks at the beginning and attack all the way", like headless flies bumping around, going in and out several times a day. Experts will never take action before the opportunity comes, and once they find the opportunity, they will make an enemy. Opportunities in trading only appear at the moment when the long-short balance is broken, that is, the "critical point" in the chart.

Good timing can be achieved: First, the entry and exit points are very clear, the stop loss point is not only easy to find, but also the stop loss range is very small, and the order at this price is easy to deal with. Second, if the transaction fails, the next step should be taken is very clear, that is, what to do after the stop loss comes out should be easy to choose. Good timing is the time when you can attack and retreat and defend.

Money management is about answering the question of how much to do. In actual trading, order volume control is to achieve two effects: one is to make a lot of money when you do it right, and lose a small amount when you do it wrong. To achieve this requires good timing and strict setting of stop loss and take profit levels. At the same time, two aspects need to be paid attention to:

First, stick to the pyramid in trading up the ante.

Second, it is necessary to properly handle the choice of whether to enlarge or shrink the order volume after consecutive profits and consecutive losses. A master can always make up for the loss of multiple mistakes by making the profit of a correct trade; a mediocre hand is often a mistake that eats up the profit of multiple correct trades.

Personal psychological control ability is very important. In fact, the quality of mentality is related to character and experience. With rich experience, psychological control ability will gradually strengthen, but once it comes to personality reasons, it cannot be solved by experience. Many times trading requires courage. For example, when the market is facing a breakthrough after a long period of consolidation, it is best to continuously increase the order volume when there are continuous mistakes. But few people have the courage to increase the order volume when there are continuous mistakes in actual trading, because it requires extremely strong psychological tolerance. The vast majority of traders will unconsciously reduce the order volume when they make mistakes.

In the end, whether it is forecasting, timing, money management or mindset control, only when combined with actual transactions can we really understand its meaning. If it is separated from actual transactions, any pyramid up the ante, long-term and short-term, etc. are empty and meaningless.